The Nasdaq is doing exactly what we want

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

The action of the past two sessions allows the Nasdaq Composite to clear its two-week range. That the breakout day, Tuesday, occurred on volume 15% above average speaks of the increasing interest on the part of institutions.

This is the type of "volume-backed up day" that was noted here at the outset of this rally five weeks ago as being a requirement for a sustainable move.

Other positives: Tuesday's 1.5% move exceeded Monday's 1.3% rise, with price going out well; and Wednesday's narrow-range day on dimmer volume reflected a lack of worrisome profit-taking. The up-and-tight action of the first three days of this week is exactly what is desired.

While there are some question marks on the fundamental horizon, including one obvious one, what is known is that, at this moment, the technical condition improves. To the intermediate-term speculator whose allegiance is to the market, and not to opinion or emotions, this is all that is important.

Among the names, Workday
WDAY, +0.69%
a provider of enterprise cloud applications for human resources and finance, came public just over two months ago. Its first six years as a company showed losses each year. Losses are also projected for the January '13 and '14 fiscal years, according to most analysts. This despite revenue growth at 78%, 130%, 108%, and 99% in each of the past four quarters, respectively.

In the late ‘90s, there were many leading stocks whose underlying companies were chest-deep in red ink. One metric favored here back then, and since, is quarterly sequential revenue growth. This refers to growth from one quarter to the next, not one quarter vs. the year-ago quarter. A company showing a 10% sequential growth rate in recent quarters, along with relative price strength in its stock, can sometimes be a potent situation.

Workday, after going public at $28 in October, had nearly doubled by its fourth day post-IPO. This gain, and the general market softness, invited sellers to lock in profits, and pressured the stock down to 46. Since then, the stock bottomed in mid-November, two days ahead of the S&P 500, a second sign of relative strength. Since then, a third sign of strength has materialized, as WDAY is up 17.3% vs. 4.5 of the S&P.

Clearly, there is something going on. Technically, there has been substantial accumulation (large-investor buying) and little distribution (institutional selling) over the last six weeks, plus. Tuesday and Wednesday, the stock was up 12%, with price trying to make a run for the roses on Wednesday. For the momentum player, this is perhaps the best-acting, highest potential recent new issue in the market.

WDAY's nine-week base is 19.6% deep, not excessive for a base of this duration and quality. WDAY can be monitored by a very aggressive speculator. The stock will preferably move sideways for at least several days before attempting a break above its all-time high of 57.21. Wednesday's wide range, elevated volume, and mid-range close may indicate price needs to take a short rest before contemplating an assault on its high. Very speculative, but with good liquidity ($51 million average dollar volume).

Stratasys
SSYS, -5.94%
was last noted here on Dec. 4 after word that Staples would enter the 3D printing market pressured the stock ("...the worst thing that could happen would be for both issues to recover, build new bases, and attempt another breakout. This would in turn offer another potential entry point.")

SSYS has indeed found its footing and is up 9% week-to-date. Volume on Tuesday was 17% above average and 56% above normal on Wednesday. Most analysts look for 35% and 33% earnings growth in '12 and '13. These estimates were most recently revised upward. An aggressive speculator could use the Nov. 29 high of 79.25 as a potential pivot point for entry, with a standard 5%-7% stop loss as a risk mitigator.

Three D Systems
DDD, -4.98%
another 3D printer manufacturer, too recovered swiftly from the Staples announcement. Most analysts eye earnings growth of 71% and 28% in '12 and '13, and estimates were most recently revised upward. The company's industry group is ranked near the top of all groups according to six-month relative price strength.

Technically, DDD came out of a two-week triangle on Tuesday, as volume roared to 74% above usual. An aggressive entry would be at current levels (51.41), using a protective stop of just below the most recent swing high of 48.25, Dec. 12's high. This would amount to just over 6% risk, and could be cut in half to 3% if a junior-sized position of one-half of a normal-sized position is used.

Elsewhere, oil & gas explorer Bonanza Energy
BCEI, -5.56%
is poised to be a leader on this advance. Its Tuesday breakout occurred on volume 75% above normal, though its close was sloppy. A junior-sized starter position at these levels (27.51) with a protective stop below the recent swing high of 25.86 (Dec. 10) would represent an aggressive entry. Risk would be 6%, or a de factor 3% if a half-sized position was used. Worth watching: recent new issue YY
YY, -0.81%

In summation, the action of this week confirms the initial bullish hints noted here in the week-ago report (Dec. 13). The averages show material improvement, as more institutions make their way off the sidelines to the feeding trough. A few speculative growth glamours join the builders in batting their eyelashes as they saunter across the tape. The opportunistic speculator in leading titles has some, but not many, pattern setups that approach suitable entry points.

At the time of this writing, of the stocks mentioned in this report, Kevin Marder or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. The information contained herein may have been previously disseminated.

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